On December 14, a fintech venture dubbing itself Robinhood launched a consumer-banking product touting a no-fee, high-return, and yet somehow still profitable checking, savings, brokerage, and payment product. It didn’t take long to see that Robinhood would steal from the poor to feed the rich. Speculative investors have somehow bid the company up to a $5.6 billion valuation despite, as even a cursory analysis of public documentation shows, a flawed business model premised on a series of increasingly improbable assumptions about the transformative powers of financial technology and the malleability of U.S. financial regulation. Continue reading “Robinhood and the Sheriff of Nottingham: The Fintech Financial-Inclusion Illusion”→

In a blog post this summer, we assessed the history of U.S. public banks over three centuries. We concluded that, “The best way to ensure that financial intermediation advances social welfare is to define a carefully-constrained charter, mandate transparent limits on self-dealing up front, and ensure that the bank is fit for purpose under reasonable rules that ensure long-term profit in concert with effective public service. Public subsidies to support public service make sense, but only when sufficient regulation and private-sector discipline constrain the natural self-serving instincts of all-too-many politicians.” Maybe so, but sizeable minorities of voters this November said that they so distrust private banks that they want a public alternative no matter the controls that might apply. In a blue-wave mood, federal legislators are listening. Continue reading “Public Banking Under a Blue Wave”→

After crafting the initial features of the post-crisis bank-regulatory framework, global and U.S. policy-makers were dumbfounded to discover that costly new rules changed the competitive financial-market balance. Mirabile dictu, when costs rose for banks, banks changed their business model to cling to as much investor return as possible instead of, as regulators apparently expected, taking it on the chin to ensure ongoing financial-service delivery at whatever pittance of a profit remained. As markets rapidly and in some cases radically redefined themselves, global regulators dubbed the beneficiaries of this new competitive landscape “shadow banks.” At themost recent meeting of the FSB Plenary, they changed shadow banks to the less stealthy moniker of “non-bank financial intermediaries.” A newBIS working papershortens the scope of shadow banking to “market-based finance,” going on to assess a fundamental question: does the transformation of financial intermediation from banks to non-banks alter the income and equality landscape? The answer: It’s complicated.Continue reading “This Little Equality Goes to Market”→

Starting in 2010, U.S. regulators erected a pyramid of complex, costly, and stringent safety-and-soundness, resolution-planning, and conduct regulations for the largest U.S. banking organizations that have come to be called SIFIs (i.e., systemically-important financial institutions). Starting in 2018, the agencies began to demolish the still-incomplete SIFI pyramid, issuing on October 31 two sweeping proposals (here and here) not only to implement new U.S. law, but also to go farther. Bankers say this is nice, but not enough; critics lambast the proposals as forerunners of the next financial crisis. Either could be right – the proposals repeat the most fundamental mistake of post-crisis financial regulation: rules piled upon rules or, now, rules subtracted from rules without even an effort to anticipate how all of the revised rules work taken altogether in the financial marketplace as it exists in the real world, not in a set of academic papers or political edicts. Continue reading “SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite”→